Go to Jeff Salisbury LWGate Home Page.From: "Katherine Malm" <kmalm@earthlink.net>
Subject: RE: [CANSLIM] stop losses and profits
Date: Tue, 17 Jun 2003 08:02:20 -0500
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Top of Thread: Re: [CANSLIM] stop losses and profits michael_niemotka@baxter.com
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Hi Mike,
I had to stretch my brain cells to remember back to this discussion from
last year!
Refining and redefining my sell rules has been a number one priority for me
since early 2000, so you'll probably understand why I've modified these
since last year. Part of what makes sell rules more complex is that the
market will influence how breakouts behave, and therefore how much
"tolerance" one would give a stock after the breakout. Last August, when
this note was written, we were deep into the Bear. Very few stocks were
breaking out and for those that were, the action was always very tentative.
This "low tolerance" point of view was part of the responsiveness to market
conditions.
Now, I've developed a more sophisticated means of monitoring breakouts in
addition to the general market health warnings that we can see from simply
looking at the price/volume chart of the index averages, so the sell rules
can be specific, but still adaptable to strong vs weak markets.
From a market perspective, the initial tolerance is affecting by asking if
this is a "strong" or "weak" market:
(1) Is the market in a confirmed rally?
(2) Are the number of breakouts increasing?
(3) What percentage of the breakouts are up >=20% within the first 3 weeks
after their breakout?
For the stock itself, the intial tolerance is affected by asking if this was
a "strong" or "weak" breakout:
(1) Was the breakout on strong volume?
(2) If the breakout was on strong volume, did it close above or slightly
below the pivot?
(3) Did the breakout follow through (i.e., show the ability to continue to
move up, however small, after the breakout)?
(4) Was the volume on the breakout week higher than the previous week?
In simple terms you can then have 4 combinations:
(1) Strong Market, Strong BO (highest tolerance)
(2) Strong Market, Weak BO (midrange tolerance)
(3) Weak Market, Strong BO (midrange tolerance)
(4) Weak Market, Weak BO (lowest tolerance)
The initial sell stop is set either at 8-10% below purchase (high
tolerance), 4-5% below purchase (midrange tolerance) or at breakeven (low
tolerance). You'll notice I'm more tolerant on the initial stop loss than
WON, as some stocks exhibit a particular volatility pattern that would force
you out unnecessarily.
I also do not use hard stops unless I'm out of town and can't review my
holdings. I use end of day prices to determine these points. Often, when a
stock has a wide-bar range, it kicks in a sell stop unneccesarily. If the
stock is weakening, hitting the stop intraday, but doesn't close below the
stop, I will watch action on the next day and determine whether the stock is
bouncing back on volume (showing strength) or wandering up on low volume
(showing continued weakness).
Regardless of market strength, after one of the following, the initial stop
is moved to breakeven:
(1) For high liquidity stocks (>=100K shares), did it rise >=20% after the
BO?
(2) For low liquidity stocks (<100K shares), did it rise >=15% after BO?
(3) Has 3 weeks passed since the BO?
Katherine
- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of
michael_niemotka@baxter.com
Sent: Monday, June 16, 2003 11:25 AM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] stop losses and profits
Katherine,
A while back you shared the below sell rules with me, and I was wondering
if you could provide a clarification on item #2. After a stock has been
held 2 weeks, you stated that you move your stop loss to break even, and I
was wondering if that was independent of the action of the stock. In
particular, if you buy a stock that breaks out, and in the first couple of
weeks moves down a little ( -1 to -3% from pivot), but then moves back up
into a + terrritory, do you still move to break even, or do you keep the
7-8% stop loss in place, and if so, for how long?
Thanks
Mike
"Katherine Malm"
<kmalm@earthlink.net> To:
canslim@lists.xmission.com
Sent by: cc:
owner-canslim@lists.xm Subject: Re: [CANSLIM]
stop losses and profits
ission.com
08/20/2002 02:41 PM
Please respond to
canslim
HI Mike,
I know I talked a bit in circles on this topic and it may have been because
I didn't read your question/response closely enough.
Here's the summary of my thinking on this issue:
I separate my sell rules into several distinct time periods, and the rules
vary a bit depending on what the stock does within a certain amount of
time.
All of this also assumes a healthy "M", of course:
1. Time period: 1st 2 wks after breakout: If the stock rises, regardless of
the percentage, then falls back on low volume, the 8% rule still holds. I
do
not add to a position unless the stock falls back near the pivot on *low
volume.* I am skeptical and keep a sharp eye if it drops below the pivot,
but it's not uncommon for this to happen, especially in iffy markets, and
especially in the first week. That's what the 8% rule is there for, it
gives
you some leeway, but there are times where it goes up quickly and then
falls
back and you're stuck with the 8% loss. When the volume picks up to the
downside, I'll move the stop to breakeven. If the volume is severe, I'll be
out before it hits that point.
2. Once the stock passes the 2 wk mark and up to the 8th week: I've moved
my
stop to breakeven. That way, I don't have to take a loss in a stock that's
risen and stayed above its pivot.
3. Once the 8 wk mark passes, new sell rules kick in.
On something like NCEN, in particular, you were fighting against tide to
begin with, so there was already extra risk in your purchase. The market
was
in a clear downtrend and had shown no signs of follow-thru. Second warning
was the churning it put in on 6/27, 6/28. Lots of volume and very little
price progress--yellow flag. That makes 2 because the poor market is a
yellow flag to begin with. Next warning: a big tail down on 7/1, though the
volume was relatively benign and didn't qualify as a "distribution" day.
Last warning to head for the exits: 7/2. A big volume day and big tail
down.
That's 4 yellow flags in a row. Time to exit if you haven't already done
so.
If it wasn't clear on 7/2, it was screaming for attention on 7/5--an up day
on very low volume. Assuming you'd missed all the signals, then you still
would be saved by a breakeven stop if you'd entered on the breakout 6/19.
All in all, the 8% stop is useful, but far less important than all the
other
sell rules after a stock breaks out.
Katherine
- ----- Original Message -----
From: <michael_niemotka@baxter.com>
To: <canslim@lists.xmission.com>
Sent: Tuesday, August 20, 2002 2:19 PM
Subject: Re: [CANSLIM] stop losses and profits
|
| Katherine,
|
| I actually followed this thinking and watched a nice profit (15%) in NCEN
| turn into an 8% loss as the bottom dropped out. I think it has made me
| make a modification to stop at break even if I end up at 15% gain, at
least
| until M has be proven to be turned. I came up with this based on
assuming
| a stock that breaks out would "normally" be expected to rise about 25-30%
| before re-basing, so if never gets up by that amount from my buy point,
| then I should exit sooner rather than later...
|
|
| Mike Niemotka , PE
| Sr. Principal Engineer
| Baxter Healthcare Corporation
| Route 120 & Wilson Road
| Round Lake, IL 60073
| Tel (847) 270-4075
| Fax (847) 270-4525
| michael_niemotka@baxter.com
|
|
|
| "Katherine Malm"
| <kmalm@earthlink.net> To:
canslim@lists.xmission.com
| Sent by: cc:
| owner-canslim@lists.xm Subject: Re:
[CANSLIM] stop losses and profits
| ission.com
|
|
| 08/16/2002 05:01 PM
| Please respond to
| canslim
|
|
|
|
|
|
| Oops...I realize now I misread your question.
|
| I would *hold on* up to 8% below buy price, but if the stock comes back
and
| *kisses* the pivot, then I would buy more. I'm not inclined to buy more
| when the stock drops *below* the pivot, unless it shows strong volume
| pushing it back up to the pivot and beyond. Now I think I've confused
even
| myself!
|
| This is the way I think of it "Kiss the pivot, second chance to buy
| more---Hit the pivot, yellow flag"
|
| Katherine
|
| ----- Original Message -----
| From: "Katherine Malm" <kmalm@earthlink.net>
| To: <canslim@lists.xmission.com>
| Sent: Friday, August 16, 2002 4:55 PM
| Subject: Re: [CANSLIM] stop losses and profits
|
| | Hi Mike,
| |
| | 8% standard stop loss, though I don't see this happen too often when
the
| | market is healthy.
| |
| | Katherine
| |
| | ----- Original Message -----
| | From: <michael_niemotka@baxter.com>
| | To: <canslim@lists.xmission.com>
| | Sent: Friday, August 16, 2002 2:54 PM
| | Subject: Re: [CANSLIM] stop losses and profits
| |
| |
| | |
| | | Katherine,
| | |
| | | I knew I could count on you for a good answer. As a follow up to
your
| | | answer #4, if you made 10-15% in one week, how low would you allow
the
| | | stock to drop on low volume and still buy more, as opposed to selling
| out?
| | |
| | | Put another way, if it ran up 15% in a week, would you allow it to go
| | below
| | | your original buy point, even if it was at low volume?
| | |
| | |
| | | Have a great weekend everyone!
| | |
| | | Mike
| | |
| | | Mike Niemotka , PE
| | | Sr. Principal Engineer
| | | Baxter Healthcare Corporation
| | | Route 120 & Wilson Road
| | | Round Lake, IL 60073
| | | Tel (847) 270-4075
| | | Fax (847) 270-4525
| | | michael_niemotka@baxter.com
| | |
| | |
| | |
| | | "Katherine Malm"
| | | <kmalm@earthlink.net> To:
| | canslim@lists.xmission.com
| | | Sent by: cc:
| | | owner-canslim@lists.xm Subject: Re:
| | [CANSLIM] stop losses and profits
| | | ission.com
| | |
| | |
| | | 08/16/2002 02:31 PM
| | | Please respond to
| | | canslim
| | |
| | |
| | |
| | |
| | |
| | |
| | | Hi Nancy,
| | |
| | | Let me try and clear up some of your confusion:
| | |
| | | 1. A stock's "rise" does not occur *in* a base, but *between* bases.
| While
| | | the price will fluctuate up and down within the base itself, the
amount
| of
| | | fluctuation will vary depending on the severity of correction and the
| time
| | | it takes to form the area of consolidation. The stock is essentially
| | | *absorbing* the gains of its previous advance.
| | |
| | | 2. When you purchase a stock, you will always purchase it as it
*breaks
| | | out*
| | | of that base. This preferred buy point is referred to as the "pivot"
| and
| | is
| | | again defined by the pattern that the base forms.
| | |
| | | 4. When a stock begins a healthy rising pattern after it breaks out,
it
| | can
| | | rise *any* amount before it consolidates (bases) again. There is no
| hard
| | | and
| | | fast rule as to how much it will rise before basing, though WON
| suggests
| | | that if it is >=25%, the next base would then be considered a "new
| stage
| | | base." This is only important in that his studies show that most
stocks
| | | can't muster the oomph to keep going after they've reached the 3rd or
| 4th
| | | stage base.
| | |
| | | 3. Mike's question about a sell rule is not dependent on *which* base
| in
| | | the
| | | base count we are evaluating. A base is a base. If the stock breaks
out
| as
| | | it should and begins to rise, how are you going to handle selling it
| | | when/if
| | | the time comes?
| | |
| | | 4. WON suggests that, if you buy correctly at the pivot (or no more
| than
| | 5%
| | | above it), that you should never have to suffer a loss of more than
8%.
| | | This
| | | is because, in his studies, he has found that a healthy stock never
| falls
| | | more than 8% below the pivot before continuing a healthy advance.
| | |
| | | 5. Mike's question, specifically, was "if a stock breaks out of a
base,
| | | then
| | | rises 10-15%, then falls back, where do you place your sell stop? 8%
| below
| | | your buy price or something other than that?" In other words, should
| you
| | be
| | | willing to accept *any* loss if a stock has managed to rise 10-15% in
6
| | | wks,
| | | then falls back to where you bought it. My vote is, if it takes 6 wks
| to
| | | rise and then erases the entire advance, I don't want to take an 8%
| loss.
| | | If
| | | it rose 10-15% in *one* week and then fell back on low volume, I'd
look
| at
| | | that as "normal" and might consider it a second chance to *buy* more.
| | |
| | | Katherine
| | |
| | |
| | | ----- Original Message -----
| | | From: "NANCY POLCARO" <zillagirl@msn.com>
| | | To: <canslim@lists.xmission.com>
| | | Sent: Friday, August 16, 2002 1:47 PM
| | | Subject: Re: [CANSLIM] stop losses and profits
| | |
| | |
| | | | Katherine-let me see if I am following correctly please. My
question
| is
| | | | that previously I understood that after the third rise in a base
| | | formation
| | | a
| | | | stock may correct by dropping below the previous base and then
| starting
| | | up
| | | | again if all is well with the stock. Then the bases start to be
| | | recounted
| | | | again. In this case, if you just bought in during the third rise
in
| the
| | | | base, which from my understanding would probably go up between
| 15%(Mikes
| | | | figure) and 25%( the amount of each rise in a base of a healthy
| stock)
| | | you
| | | | would sell(not you personally but someone with my amount of
| experience
| | or
| | | | the like) before the 8% drop, to protect your gain. Then follow
the
| | | stock
| | | | and watch for a buy in again at some point depending on how the
stock
| | | acts
| | | | from this point on? Is that close to correct ??? Thanks for your
| | | thoughts
| | | | Nancy
| | | |
| | | |
| | | | >From: "Katherine Malm" <kmalm@earthlink.net>
| | | | >Reply-To: canslim@lists.xmission.com
| | | | >To: <canslim@lists.xmission.com>
| | | | >Subject: Re: [CANSLIM] stop losses and profits
| | | | >Date: Fri, 16 Aug 2002 13:09:30 -0500
| | | | >
| | | | >HI Mike,
| | | | >
| | | | >I think you'll get a hundred different answers on this one, so
I'll
| | just
| | | | >answer from my personal point of view.
| | | | >
| | | | >If a stock breaks out of a well-formed base on volume, then takes
6
| | | weeks
| | | | >to
| | | | >rise 10 or 15 percent, then I sure wouldn't want to risk 8% loss
at
| | that
| | | | >point, even if it were falling back "normally" as you suggest. To
me
| | | that
| | | | >means that no sell signals were triggered on the way up, and that
| the
| | | | >general pattern included up days on higher volume than down days,
| | | support
| | | | >at
| | | | >the 50 day moving average, etc. My personal preference, however,
| would
| | | be
| | | | >to
| | | | >move my stop to breakeven or slightly below (3-4% max, depending
on
| | | market
| | | | >conditions) if the stock had risen like this.
| | | | >
| | | | >Katherine
| | | | >
| | | | >
| | | | >----- Original Message -----
| | | | >From: <michael_niemotka@baxter.com>
| | | | >To: <canslim@lists.xmission.com>
| | | | >Sent: Friday, August 16, 2002 9:17 AM
| | | | >Subject: [CANSLIM] stop losses and profits
| | | | >
| | | | >
| | | | >| Group,
| | | | >|
| | | | >| In reading WON, he makes a statement that you should never let a
| | stock
| | | in
| | | | >| which you are up 10-15% turn into a loss, but I was wondering
you
| | have
| | | | >| interpreted that along with the sell at no more than an 8% loss
| rule.
| | | | >|
| | | | >| Say you buy a stock, at a breakout, and it rises 10-15% over a
few
| | (6+
| | | | >| weeks), and then is started to correct....Do you sell at you
break
| | | even
| | | | >| point, or do you allow it to go to your 8% loss point before
| selling?
| | | | >This
| | | | >| is assuming that the stock is NOT giving any strong sell
signals,
| but
| | | | >| appears to be pulling back "normally".
| | | | >|
| | | | >| Thanks
| | | | >|
| | | | >| Mike Niemotka , PE
| | | | >| Sr. Principal Engineer
| | | | >| Baxter Healthcare Corporation
| | | | >| Route 120 & Wilson Road
| | | | >| Round Lake, IL 60073
| | | | >| Tel (847) 270-4075
| | | | >| Fax (847) 270-4525
| | | | >| michael_niemotka@baxter.com
| | | | >|
| | | | >|
| | | | >|
| | | | >| -
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Next Article (by Author): Re: [CANSLIM] TSCO Marc Deiter
Previous Article (by Author): RE: [CANSLIM] TSCO "Katherine Malm"
Top of Thread: Re: [CANSLIM] stop losses and profits michael_niemotka@baxter.com
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